Busting Budget Myths

How can it be that WA has a first rate economy but second rate government finances?

Many hold as faith that the downgrading of the financial ratings for the WA Government is the result of Canberra ripping off our GST and there being too many over-paid public sector workers.

But are these views based on myth or reality?

To explore these and other issues, UnionsWA and the Save Our Services campaign commissioned respected consulting firm BIS Shrapnel to analyse economic and budget trends in WA. The background pre-Budget report is available here and the report analysing the 2014 WA State Budget is available here.

Fuelled by demand for minerals and energy, economic growth in WA has been 50% greater than Australia as a whole.

Between 2008 and 2014 WA Government revenues from all sources, adjusted for inflation, have risen by 26%. Over the same period WA’s population has increased by 413,000 or 19%.

Where has all the money gone?

Can’t we afford better schools, health, community safety, welfare and transportation services? Why is funding for services being cut?

Myth #1: Canberra and the GST

This resources boom has resulted in dramatic increases in royalties’ revenue. In constant 2011/12 prices, royalties have risen from $1.8 billion in 2008 to $5.8 billion in 2014.

This increase in royalty receipts has been discounted with the Commonwealth Grants Commission adjusting WA’s share of GST revenue downwards. However, after adjusting for inflation, BIS Shrapnel found that between 2008 and 2014 WA’s GST revenue fell by about $2 billion (2011/12 prices).

Currently the WA Government is receiving twice the money it has lost in GST revenue due to increased royalty receipts.

Myth busted.

Myth #2: Public sector wages

Now, let’s look closely at the wages of public sector workers. Between 2008 and 2013 the WA public sector workforce increased by only 13%, well short of population growth, even allowing for the effects of privatisation and out-sourcing.

In constant dollar terms, the average cost of a WA public sector worker (wages, plus on-costs) in 2008 was $60,000, well behind the all-states average of $64,000. By 2013 per employee costs stood at $70,300, only marginally above the all states average of $69,600.

Public sector workers in 2013 had full time earnings at 92% of those in the private sector, not much improved from 90% in 2008. The improved wages of public sector workers has mostly been catch up and the public sector wages bill as a proportion of all expenses has actually fallen.

Myth busted.

Myth #3: Privatisation saves

The Barnett Government has form on privatisation, and this year’s Budget indicates things are about to get a whole lot worse. The budget clearly flags the intention to privatise power, water and port infrastructure. Given the mess that has been made of the Serco privatisation at Fiona Stanley Hospital it’s fair to ask: does privatisation help?

The Barnett Government has increasingly sold public assets – up from a half a billion in 2009 to $1.2 billion in 2014 in real terms. These are one-off revenue-raisers, with either other cost increase or foregone income.How public assets and infrastructure are acquired matters as well. The WA Government has largely funded infrastructure developments such as Elizabeth Quay from borrowings. As a result, interest payments on debt have increased from $120 million in 2008 to $504 million in 2014. The cost of depreciation on government assets has also increased from $709 million $1.3 billion.

‘Other operating expenses’ in the WA Budget have almost doubled in real terms from 9.3% in 2008 to 17.4% in 2014. This is mostly expenditure for the outsourcing of public services to business and community groups, but the lack of transparency in the budget papers makes it hard to scrutinise and impossible to know if the public is getting value for money.

Myth busted.

Myth #4: All taxes are bad

As part of the leading economy in Australia, it’s reasonable to expect West Australians to lead a mature debate about public revenue and taxation.

It matters greatly whether governments raise revenue fairly or not.

Royalties paid by resource corporations are a tax for the one-off extraction of non-renewable public resources and public revenue fluctuates according to the value of the Australian dollar - they are fair but unpredictable.

GST is paid for by every consumer, at the same 10% rate, regardless of income. Similarly when the Barnett Government hikes up the cost of our electricity, water, education, health or transportation services, these are regressive – those who suffer most are those on fixed or low incomes or who already face high costs of living.

If Tony Abbott’s mooted tax is on very high income earners then at least it is a tax on those who can afford it and that’s good criterion.

Myth busted.

Myth #5: Public bad, private good.

The real myth that needs to be busted is that our public sector is in some way unworthy. Good public policies bring about skills and learning, good health, safety, assistance to those disadvantaged and smooth transportation between home, work and community as well as other common goods. They facilitate opportunity, fairness and stronger communities.

That’s no myth.

Meredith Hammat

Secretary

UnionsWA

An edited version of this article was published in The West Australian ('Myth-information bad for the State economy') on May 13, 2014.